SEC Says Confidentiality Agreements May Have 'Muzzled' Whistleblowers

In several recent articles, Labaton Sucharow partner and former Securities and Exchange Commission (SEC) official Jordan A. Thomas commented on the SEC's first action against a company penalizing the technology and engineering firm KBR for forcing employees to sign "restrictive" confidentiality agreements.

According to Jordan, "These problematic agreements are widespread and growing."

"The use of employment agreements to silence potential whistleblowers has been widespread and growing," he said. "This landmark enforcement action is the first step in attacking this significant law enforcement-investor protection problem. This is just the beginning. I predict that the SEC will bring more cases like this in in the coming years."

Nonetheless, the case should serve as a clear warning signal to any other companies using similar wording in their agreements, noted Jordan, chair of the Firm's whistleblower practice.

"The next company won't have that defense," Jordan said. "They won't be able to say, 'We didn't know.' They'll pay a higher price because they were put on notice and didn't correct the problem."